FASB makes narrow changes to financial instruments guidance

By Ken Tysiac

FASB issued accounting and financial reporting guidance on Monday that makes narrow-scope changes that are intended to improve the board’s standards for financial instruments accounting, including the credit losses standard issued in 2016.

The standard is part of FASB’s ongoing project to improve and clarify its Accounting Standards Codification and avoid unintended application. The items addressed are not expected to significantly affect current practice or create a significant administrative cost for most entities.

Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments, contains amendments that:

  • Clarify that all entities are required to provide the fair value option disclosures in Paragraphs 825-10-50-24 through 825-10-50-32.
  • Include the phrase “nonfinancial items accounted for as derivatives under Topic 815” in Paragraphs 820-10-35-2A(g) and 820-10-35-18L to be consistent with the previous amendments to Section 820-10-35 that were made by ASU No. 2018-09, Codification Improvements.
  • Clarify that the disclosure requirements in Topic 320, Investments—Debt and Equity Securities, apply to the disclosure requirements in Topic 942, Financial Services—Depository and Lending, for depository and lending institutions.
  • Make changes designed to improve the understandability of guidance in Subtopic 470-50 for cross-referencing to line-of-credit or revolving-debt arrangements, and in Subtopic 820-10 for cross-referencing to the net asset value practical expedient.
  • Clarify that the contractual term of a net investment in a lease determined in accordance with Topic 842, Leases, should be the contractual term used to measure expected credit losses under Topic 326, Financial Instruments—Credit Losses.
  • Clarify Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets, to explain that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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